The Case for Trump’s Tariffs

U.S. President-elect Donald Trump has called tariffs “the most beautiful word in the dictionary.” That is not how other world leaders and CEOs see it. If Trump follows through on his proposal to impose 60 percent tariffs on China and 20 percent on other countries, the potential for disruption and chaos is significant.

But beyond the short-term pain, is there a positive case to be made for tariffs? And if so, what would it be? Enter the conservative economist Oren Cass, the founder of the increasingly influential think tank American Compass. A cast of rising Republican figures, including Vice President-elect J.D. Vance and Secretary of State-designate Marco Rubio, have amplified Cass’s work diagnosing the harms inflicted on the American heartland through free trade and globalization. Cass also contributed to Project 2025, the conservative policy tome that looked to shape the Trump 2.0 agenda.

Cass doesn’t speak for Trump and doesn’t seem to be seeking a role in the next administration. But Trump’s disruption of the status quo has created room to elevate Cass’s ideas—especially as a new generation of Republican politicians step up to shape policy. I spoke with Cass on FP Live about Trump’s economic plans. What follows is a condensed and edited transcript.

Ravi Agrawal: I want to have a broad conversation about the American economy, but let’s start with tariffs. U.S. tariffs have consistently fallen from the 1940s to about 2016, when Trump was elected for the first time. Explain to us what the reversal of this trend is solving for.

Oren Cass: The problem we’ve seen over that full period, but really over the last 25 years or so—especially since China’s entry into the World Trade Organization [in 2001]—is that free trade has not worked at all how most economists predicted. There was a great deal of noise about how all economists unanimously predicted that free trade with China would be a wonderful benefit for the United States, its workers, and the strength of its economy. We lowered tariffs and lowered barriers on that basis. We have not seen the benefits that were promised. In many cases, we’ve seen the reverse. Certainly, we do have more cheap stuff in the United States, but I think the vast majority of Americans would rightly say it has not, on net, been beneficial.

And so we have this conflict now where a lot of economists are still using those exact same models from 25 years ago. And unsurprisingly, those models that say free trade is a wonderful benefit also say going in the other direction would have costs that exceed the benefits. Once you realize and admit that those previous models were wrong, that they got the trade-off backward, you can’t continue to use those models to argue against less free trade. You have to recognize that less free trade is going to benefit the people. We need to be focused on those who have been left behind.

RA: We can agree that many of the market forces of the last 40 years—globalization, urbanization, free trade—had both positive and negative impacts. But if tariffs are, in effect, a sales tax, don’t they make goods more expensive for the same consumer who has been most impacted by all of these market forces?

OC: On the sales tax point: It’s a point of political rhetoric, not of useful economic analysis. The best contrast here is a carbon tax. I’ve never heard an economist say, “Well, technically a carbon tax is a sales tax,” because they’re trying to sell a carbon tax. And so I don’t disagree with your point that there will be an effect on prices. But as a matter of economic analysis, we recognize things that prices are not taking into account, whether that is pollution or, in this instance, the value of making things and the fact that domestic industrial capacity has enormous implications for a labor market, for an economy, for national security. Market prices aren’t going to consider those things. If we need to insert a wedge into that price to reflect those costs or those benefits, then there will potentially be an effect on prices. But we don’t just call that a sales tax and say that it’s going to be inflationary. Except if, for ideological reasons, we don’t like tariffs.

The way to understand tariffs is as a recognition that making things does matter. That’s something that economists have resisted acknowledging for a very long time. Some still won’t admit it. But a lot of economists are starting to admit it because it is such an unsustainable position to argue the reverse. If making things matters, if domestic production matters, then in fact the market price at which we just buy cheap, subsidized stuff from China is not the efficient price because it won’t maximize welfare growth in the long run.

RA: To take a global view of this, many decision-makers around the world are afraid of the uncertainty of tariffs. Trump’s surrogates often say that his campaign rhetoric on tariffs is a negotiating tactic. So there’s a wide range of possibilities, from the current rates to 20 percent or higher. Doesn’t that end up hurting smaller exporting countries, which don’t have the means to effectively lobby for better tariff rates? And more than that, doesn’t it then make it more likely that many countries around the world are going to accelerate plans to build trade relationships that bypass the United States as much as possible? What I’m getting at here is, could an excessive U.S. tax regime accelerate a post-American world?

OC: On the first point about uncertainty, let me ask, have you ever heard anyone raise that concern about an administration wanting to open up a bunch of new trade deals? It’s a somewhat rhetorical question because no one would ever say that.

On the other point, about smaller countries, that’s very possible, but it’s not a primary concern for U.S. policymakers. All other things being equal, we would certainly like to support allies around the world. But one of the big mistakes of the past few decades is that globally oriented policymakers in the United States are putting international interests above American interests. Tariffs simply bring a return to the way policy should be made, which is putting American interests first.

I also want to address the second piece of your question, which asked whether the United States raising barriers will drive countries to a post-U.S. order and have closer ties to China. But if we want to talk about a country that does not respect or consider the interests of other countries, open its market, or pursue free trade, China is and will be for the foreseeable future a far worse offender on all of those grounds than the United States is. What actually happens today is that the idealistic international world order model in which the United States has to sort of unilaterally disarm for the benefit of everybody else leads to the United States being taken advantage of a lot.

RA: I’m definitely not going to defend China here. But let me find a slightly different way to make this point. The world order as it exists today was deployed and backstopped by the United States, through the Bretton Woods system. My question is, if the United States deploys tariffs as statecraft, it creates the sense that the United States has one set of rules for itself and a different set of rules for everyone else. Then it accelerates this perception that the United States built a global order based on free trade when it benefited from it and then pulled back when it wanted to stop others from benefiting from it. You may say that it is now putting American interests first, but it signals to other countries that the international order, as built and put forward by the United States, is shifting.

OC: I certainly think the world is shifting. I would just reject this vaguely idealistic view that what guides relationships between nations is a perception of who benevolently abides by an abstract ideal. Again, China’s behavior in the international system, undermining much of what the United States tried to build, is the proximate cause of the failure of the global trading system. And yet, as far as I can tell, a lot of these countries you’re centering in the discussion are increasingly favoring China as a result.

So I certainly agree that the world order has changed and is changing. But I reject the idea that the United States is the one changing it. I think the United States has turned the other cheek in a changed world for far too long.

One of Trump’s most important correctives—whether regarding NATO’s behavior and global security payments or the WTO operations—is that he’s ensuring the United States is not going to sacrifice its own interests for the benefit of everybody else, especially when we have such serious domestic problems. Just to offer a fascinating data point: If you look at death rates from drug abuse in the United States today, it is as high as the rate of alcohol abuse deaths were in Russia after the collapse of the Soviet Union, when that state failure seared into the collective consciousness of the post-Cold War world. The idea that the United States is going to focus more on how other countries feel about global ideals when we have left our own problems unattended is, first of all, substantively immoral, and as a political matter, it’s just not practical. The American people have made clear they’re not going to make that trade-off anymore. I don’t think anybody should expect them to.

RA: When I read your work and I listen to your arguments, there’s a significant part that is pro-worker. It feels as if there’s an alignment here with the left, with someone like Sen. Bernie Sanders. Is that fair?

OC: I certainly think there’s an alignment to some degree on diagnosis. It’s important that you can have very different ideological points of view on the role of government, how you define the common good and quality of life, but a lot of agreement on basic data. We’ve seen a real effort to ignore that, to a significant extent, on both sides of the aisle. But frankly, it has especially been a problem on the right of center, where there tends to be an impulse to avoid acknowledging issues and argue that everything coming out of the market is great because if you admit that’s not the case, then you have to start engaging in policy conversations that you might rather avoid.

There’s a significant amount of progress among a lot of conservatives like Rubio, Vance, and Sen. Josh Hawley. In our work, we need to have a very clear-eyed view of what has been happening in our economy. If Sanders says some of those things, too, that can’t be a strike against reality.

RA: As you’re speaking, it occurs to me that the Biden administration seemed to share your diagnosis of what’s not working, especially when talking about a foreign policy for the middle class, or when someone like Heather Boushey [who spoke to FP Live last year] talks about growing the economy from the bottom up and the middle out. I’m curious, what was your sense of how Bidenomics worked or not?

OC: There are definitely points of agreement on the rhetoric. Where the rubber meets the road is on policy priorities and trade-offs. I think, unfortunately, in the Biden administration, some very well-meaning ideas met the reality of what drives politics within the Democratic Party. The major priorities that they focused on were things like refusing to enforce immigration law, focusing investment overwhelmingly on climate policy, forgiving student loans, and propping up higher education rather than providing alternative pathways to good jobs.

The exception to bad policy was the CHIPS and Science Act, which my organization worked on extensively and ultimately was bipartisan. Creating an industrial policy focused on rebuilding domestic semiconductor capacity was absolutely important. I certainly hope the Trump administration will carry it forward. Those are the sorts of areas where I see overlap and where there has been bipartisanship.

RA: You do not speak for Trump, but you’re often cited as someone who can explain some of the thinking that animates him. So, what elements of the Trump economic agenda worry you?

OC: Trump was an incredible disruptor of the outdated and expired traditional philosophy on the right of center. He created an enormous amount of space for new thinking. I also think he highlighted very important problems and forced a lot of people to realize they were not using the right measures to assess how the country was doing.

But I think probably in this administration, there is still more focus than necessary on Wall Street as an indicator of success. We’re seeing the focus start to shift toward workers and recognizing that capitalism works well when employers and workers have a level playing field and workers have power too, not when employers have free rein. We’re moving in that direction, but there’s still a long way to go.

RA: Another major issue of Trump’s second term is what to do about illegal immigration. There are many millions of undocumented workers in this country and many economic studies that show mass deportation could cost a lot and could hurt the U.S. economy. What is your sense of the options available to Trump?

OC: The first thing is that we do have to enforce the law. This idea that the rule of law is subject to our economic studies is absurd and unbecoming of a great nation, especially a democratic republic. So, when you tell me there are millions of undocumented workers in this country, that means there are millions of people who are actively violating the law, for the most part employed by people who are themselves violating the law. That’s just not acceptable. There is no other area where we would conduct an economic study on the effect enforcing our laws would have on GDP because it’s understood that to build an economy or a coherent political system, you need to be a nation of laws.

RA: But having run afoul of the law for decades now, how quickly do you reverse course, given that the pace of change will have immense economic impacts that you cannot ignore?

OC: When immigrants are flooding into the United States, we’re supposed to pretend there are no negative economic effects. In fact, we’re supposed to pretend it’s positive for our economy. We hear all of these wonderful theories about how they’ll be consumers as well as workers, and they’ll be complementary and so on, which, of course, is not true. When economists themselves analyze that question, without political ideology blinding them, they notice that large influxes of migrants, particularly at the low end of a labor market, are not good for the people in the low end of the labor market. And the low-wage workers in the United States, again, are the ones who have been left behind and harmed by these economic policies.

Now, in terms of what you do, you start from the point you’re at. It is important to balance the need to make rapid progress on the issue and enforce the law with ensuring progress is as beneficial to the American people as possible. There’s no point in cutting off our nose to spite our face. I think Vance has been very sharp on this point. What he’s underscored is there’s an obvious sequence here—we have enormous numbers of illegal immigrants with criminal records who are deportable, who the Democratic Party has nevertheless argued should not be deported. They might be in sanctuary cities run by Democratic mayors who don’t want to deport these people. I believe there are more than a million illegal immigrants under active deportation orders—that’s where you would start.

Step two behind that is people who have entered very recently in this wave of lawlessness that the Biden-Harris administration encouraged, this unprecedented influx. Many of them are people who Vice President Kamala Harris would say are technically legal because they were admitted under the abuse of this or that temporary status. They also need to leave. Those are folks who have not been here long or put down roots, so the American economy is not relying on them.

You also need to start doing much better employer-level enforcement because the law violation is by the employer as well. And so, in parallel, if we start to step up workplace enforcement, make E-Verify mandatory, and prevent migrants from getting jobs that they’re not legally authorized to have, people will stop moving back and forth frequently across the border. That’s an entire next tranche that you can address.